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Inflation falls slightly in November

Caroline Smith

A rise in consumer prices could hold the central bank back from cutting interest rates in December.

The TD Securities-Melbourne Institute monthly inflation gauge, released on Monday, fell 0.1 per cent in November, after rising 0.1 per cent in October, and 0.2 per cent in September.

However for the 12 months to November, the gauge rose 2.5 per cent, the mid-point of the Reserve Bank of Australia's (RBA) 2.0-3.0 per cent target band.

The main price rises for the month were in bread and cereals, newspapers, books and stationery, and dairy products.

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These were offset by falls in fruit and vegetables, automotive fuel, and holiday travel and accommodation.

TD Securities head of Asia-Pacific research Annette Beacher said that despite the monthly fall, inflation was still following the rising trend of the past few months.

"We highlight that November is a weak month for price rises in the gauge, which tends to be followed by a decent average seasonal pick-up in December," she said.

She added that inflation for the December quarter should rise by 0.2 per cent, generating annual inflation of around 2.5 per cent.

"We are of the view that underlying inflation will continue to remain close to the mid-point of the RBA 2.0-3.0 per cent target range," she said.

With the RBA meeting on Tuesday to decide on whether to cut the cash rate, Ms Beecher said it would be a close call, but a reduction was unlikely.

"Better global activity data continues to trickle through, especially from the United States and China, while underlying inflation appears set to remain mid-target, well away from the bottom of the range," she said.

"While it is appropriate to leave an easing bias on the table, we cannot identify a smoking gun for a near-term policy adjustment."

At its November 6 meeting, the RBA left rates on-hold at 3.25 per cent, after easing in May, June and October.